ACCOUNTANCY BEYOND THE NUMBERS with Hayes Knight

TO FISH, OR TO FIX?

Fishing is fun... except when you’re badly prepared. The same is true for your business.

I remember my trip a couple of summers ago to the Barrier with the boys vividly, but for all the wrong reasons. We set off for a 5-day adventure, with nothing in our heads but how many crays we were going to get, whether to go after Kingfish or Hapuka, and who was going to land that elusive 20lb snapper.

Day one: a blown dive regulator air hose and a weight belt left back in Auckland meant the boys had to dive in shifts - eating into valuable fishing time.

Day three: 2 dive tanks out of test and unable to be filled.

Day four: finally hooked that 20lb snapper! But then the reel seized, the line snapped. We came home with a sinking feeling - and no fish. We all knew we were better than that. Why hadn’t we addressed the basics and planned properly?
Back at work the following week, a client called me.

“I’ve got this opportunity to tender for a major contract, but I need to state some key facts about my business,” they said. “They want to know my asset replacement policy, my capacity to fund high stock levels, my ability to give priority service at short notice and to attract new employees, my reliance on key suppliers...and so on.”

My client could clearly perform the contract to a high level, but these questions painted his business in a poor light. I felt a chill of recognition as he said, “We’re better than this, but I just haven’t spent the time on the basic building blocks of my business.”

There was one important difference. I missed a 20lb snapper. My client faced missing an important deal for the future of his business.

Sometimes we need to understand when to cut bait and when to go fishing. Too many times we’re searching for growth and that “next big one”, but neglect to address the basics that’ll get us there.

We need to put some time aside to dissect our businesses and discover what areas need better focus. More importantly, we must choose to act on those issues once unearthed. Your business needs a ‘health check’ from time to time, and you need some independent help to ensure you reveal your company’s true position.

But what does a health check entail? Simply put, it leads to a review of the bones of the business and its stability. It can include a breakdown of each operating unit, branding and marketing strategies, financial stability and returns, customer dependability, competitor analysis, employee issues, environment (industry and economic sustainability), suppliers and fulfillment of compliance matters.

Each business will have its own hot issues to address. It’s a matter of accepting what action is required, by whom and by when. An honest business health check will help build a business plan and launch a business to the next level. In conjunction with this plan, you should also perform cash flow modelling, which incorporates marketing initiatives and capital expenditure, so you know what to expect and the timing of your working capital requirements.

You need to find out where your business is now, where you want to take it, and how it’s going to get there. Too often we concentrate on the financial indicators (including sales growth) but overlook the non-financial values. Employee attraction and retention, energy into innovation, and reducing reliance on the owners are examples of focusing on the non-financial lifelines of a business. Improve these and you will improve business value.

In planning for success we need to reduce business risk. This will help increase business attractiveness and ultimately provide a better chance of realising that desired sale price. Your business should be robust enough to ride through an economic storm, recover from a poor contract or sales line, and have a strong base from which to launch growth or win that major job opportunity. Buyers are looking for future cash flows and the lowest risk possible in realising them.

Success in business is a journey, not an event. It starts with a thorough investigation of where your business is now, so you can plan how to take it to that winners circle. A health check is almost a prerequisite. Plan properly to ensure all facets of your business are healthy and you’ll have a better chance of reeling that big one in!